Closing the gender gap in investing

Published on M2Woman Journey to Excellence.

The world of finance can be a confusing and intimidating place, especially for those who are just starting out. This is particularly true for women, who often face additional obstacles and barriers when it comes to investing and financial planning. However, as Haley van Leeuwen, an investment adviser with Craigs Investment Partners, points out, with knowledge comes power – and that power can lead to greater financial freedom and security.

One of the biggest challenges facing women when it comes to investing is a lack of knowledge and confidence. According to a study by BNY Mellon, only one in 10 women globally felt they fully understood investing, and only 28% of women felt confident about investing their money. This disparity is even more pronounced when it comes to the amount of money women have to invest – they often have less than men, due to factors such as the gender pay gap and career interruptions caused by caregiving responsibilities.

The causes of the gender pay gap are complex and include factors such as differences in education, occupations, and industries that men and women work in, or the fact that women are more likely to work part-time, which only explain around 20 percent of the current gap. The majority (80 percent) of the gender pay gap is now driven by “unexplained” factors, such as conscious and unconscious bias in recruitment and pay advancement, as well as differences in men’s and women’s choices and behaviors. Societal attitudes and beliefs about gender roles, biases in decision-making processes, occupational and vertical segregation, and differences in unpaid and caring work patterns also contribute to the gender pay gap. For example, women often face challenges in advancing their careers due to taking career breaks or working part-time, which can result in less work experience and limited opportunities for professional development.

While there are some high profile women CEOs in banking, Haley also suggests that across the finance industry more broadly, there is a lack of women in high-level finance positions and gender imbalances at board tables may be due to deep-seated beliefs that finance is a male domain.

“I think it’s something that’s deep set in the psychology of women. The governance sector and specifically the Institute of Directors have been doing a good job at addressing gender imbalances at the governance level, however there is still work to be done in this space.”

She notes that while there are many women who are confident and interested in finance, there are still some who feel uncertain about how to get involved. She also notes that some women may cheat themselves out of future returns by automatically selecting a conservative option. However, she points out that KiwiSaver is a great example of an investment where there are no perceived barriers to entry, and many women already have accounts. Overall, Haley believes that there is a shift happening in the perception of a woman’s role in finance, but it may take time to overcome deep-seated beliefs.

There is some good news on the horizon in terms of these beliefs. U.S. Bank’s 2022 Women and Wealth Insights study found that in the US, 55% of women are now confident in their ability to manage their finances, compared with just 48% two years ago. This should flow through to NZ as a global trend and is a positive sign that women are gaining greater knowledge and confidence when it comes to investing and financial planning.

One key reason why knowledge is so important when it comes to investing is the power of compounding returns. As Haley points out, “the earlier you begin an investment, and the longer that money remains invested, the larger the reward.” This means that even small amounts of money invested early on can grow significantly over time. As an example, Haley cites a client who came to her with money that had been sitting in a term deposit for years. Despite only having 10 years until retirement, Haley was able to create a plan that gave the client options she wouldn’t have had otherwise.

Of course, gaining knowledge is only the first step. It’s also important to take action and start investing. This is where investment advisers like Haley can play a crucial role. By providing guidance and support, advisers can help women overcome their fears and take that first step towards greater financial security.

Haley highlights the role of emotions and psychology in financial decision-making, sharing that some investors have a scarcity mindset around money, often rooted in their upbringing and experiences. She gives examples of clients who have inherited money but struggle to spend it due to deep-seated money beliefs. This mindset can lead to poor investment decisions with some clients being too scared to leave term deposits and invest in more diverse portfolios.

However, she also acknowledges that some people are simply more comfortable with conservative investments and may not be suited to more risky options.

“Money is something where people have a lot of emotion tied up. It can be dependent on the experiences of your childhood and the language used around the kitchen table about money. These experiences all form your own personal set of beliefs around money, investments, and basically how you survive in the world. Some can work through these beliefs and reprogram their thinking around finance and for others this can be a challenging task.”

As Haley explains, “Creating a sense of accessibility to advice is fundamental to continuing to change the statistics.” To this end, Craigs Investment Partners has developed a Women’s Wealth programme, run by female advisers around New Zealand. This programme is designed to empower women of all ages with the knowledge and confidence they need to start investing or become better investors.

“The key to making finance more approachable for women is to change the style of communication. Women do not want to be treated like they are stupid; they want to understand finance and investing in a way that makes sense to them.”

Haley believes that using relatable examples is one way to make finance more accessible. For instance discussing companies that people have frequent interactions with or are familiar with their brands is a good way to make investing more relatable. The energy sector is a relatable industry to invest in due to daily touchpoints as energy consumers. Companies like Meridian Energy, Contact Energy, and Genesis Energy are examples of companies people may have their power through. Investing in these companies means owning a tiny slice of their assets, and Haley believes that breaking it down this way helps people understand what investing in shares means.

New fintech apps have also made it easier for people to access shares in these companies but she does warn that it’s important to remember that not all investment opportunities are created equal, and blindly following the crowd can lead to significant losses.

“So there’s a bit of a dichotomy in the market at the moment as the fintech apps have certainly made it easier for investors to set up portfolios and start investing, which is great. It can be at your own peril as it requires self-management, research and monitoring. For others receiving structural long-term advice is more important and they would prefer to have their own adviser to work with who can walk them through the ups and downs of the market.

It’s crucial to do your own research and make informed decisions based on your own financial goals and risk tolerance. And that’s where the importance of financial education and advice comes in.

Another common misconception about investing is that it is a male-dominated field. Many people think that investing is all about men screaming at each other on a trading floor. However, Haley believes that this is not the case in the current century. While finance was the wild, wild west in the eighties, it has evolved since then, and investing is much more accessible and inclusive now.

Ultimately, the message that Haley wants to convey is that knowledge is power – and that power can lead to greater financial freedom and security. “With knowledge and confidence,” she says, “we’re more likely to take action and invest in ourselves and our futures.” By working to close the gender gap in investing and financial planning, we can help ensure that all women have the tools they need to achieve their financial goals.

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